This article was originally published by Bonds & Loans. It has been reprinted with permission.
Tecnoglass, among a select few Colombian non-financial corporates to take the plunge in the international bond markets last year, is looking to consolidate its investments over the past few years. The company’s Chief Financial Officer Santiago Giraldo López tells Bonds & Loans the company will look out for strategic growth opportunities in 2018, but risks still ride high on election uncertainty and a lag in key sectors.
Bonds & Loans speaks with López about the company’s landmark bond transaction, its funding strategy, and its outlook on the economy through the remainder of 2018.
Bonds & Loans: In 2017, Tecnoglass became the first debut issuer in the international capital markets among Colombian, non-financial corporates since 2013. Looking back on the deal now, how did your expectations on pricing and demand evolve?
Santiago Giraldo López: Looking back on the bond issuance, we were very happy given the oversubscription we saw, and we were pleased to see the great interest from American and European investors for paper originating in Colombia. There aren’t many corporates that raise money outside the country, and even fewer in high-yield territory, but investors do see that stability and sound monetary policy can help create very good investment opportunities.
We ended up attracting some heavyweight investors like Franklin Templeton and Black Rock, which was a good vote of confidence. From the price point of view, we end up paying premium – largely due to the Trump effect. However, we must look at it within the context of the broader market environment, since we made the same emission at a time of historically low interest rates and with the expectation of three or four more rate increases from the Federal Reserve this year. That said, being able to secure fixed rates for five years is a big advantage that mitigates the risk of interest rate volatility.
Latin American bond markets are seeing record levels of activity. Do you anticipate Tecnoglass will hit the market again in 2018? How is the bond market looking when compared to the local or international bank markets?
Santiago Giraldo López: One of the great advantages of having opened up to the capital markets is the additional source of capital to which we have access. It is always good to have our key relationship banks on our side, and be able to count on lines to finance growth, but the capital market provides an important additional funding window. Our note is trading very well, within the 105 area, we could make an incremental addition to the bond; however, everything will depend on the needs of the company. Tecnoglass is concluding a phase of rapid expansion in capex; in recent years we have spent more than $250 million USD investing in strategic areas of our business. The idea is to consolidate that growth and see what opportunities are presented in the future.
That said, what are some of the company’s key strategic initiatives in place this year? And those of the funding team?
Santiago Giraldo López: Last year was very challenging in Colombia. We ended up growing in terms of sales when compared with 2016, which today represents approximately 75% of our income; based on the reactivation of orders, we see that billing in Colombia should be much better than last year. We want to continue growing in Colombia where we have a large portion of the market and continue to penetrate where we see a cycle that continues to expand. Last year we acquired a company that is responsible for the installation of our products in that market, and the idea is to use it as a growth platform in other states of the northeast, the west coast, as well as Chicago and Texas.
From the point of view of investments, this is a year of consolidation of what we have achieved in recent years, although we will always be vigilant in looking out for new opportunities that make sense from the point of view of our strategy and valuation.
With oil prices on the rise, are there concerns that the COP could see a big impact as in years passed? How do you see this impacting Tecnoglass?
Santiago Giraldo López: Our income and costs are very well balanced since approximately 80% of our revenues are in dollars and 20% in pesos. The dollars are enough to cover our costs in US dollars which are approximately 55% in addition to the interest on our debt, which is 100% in US dollars. The sums that we generate locally cover our local costs and tax expenditure.
At the end of the day, the devaluation favors the company, in part because we generate revenues in dollars, and because our labour and local costs are less sensitive to shifts in the exchange rate if there is devaluation. Additionally, we become more competitive in the United States.
In some way it seems that although there is an inverse correlation between oil and strength, in recent months it has been seen that the determining variables are multiple, and it is increasingly difficult to determine the behavior in the rate. It’s one of the more interesting shifts seen in the market as of late.
What is the biggest risk facing the Colombian economy this year?
Santiago Giraldo López: Definitely the uncertainty generated by the elections and the political polarization of the country. Expectations are high and this generates a sense of unease and lower confidence among consumers, where demand accounts for two thirds of the country’s GDP.
In addition, I believe that fiscal policy has to be consolidated to ensure that the accounts become more balanced. With the recent calls from S&P and Moody’s, it is important to be able to show responsible fiscal policies. We must reactivate depressed areas such as industry, consumption and construction.